- 26 Jul 2021
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As the cryptocurrency business is snowballing, there is an exponential value increase in some assets, the non-fungible tokens, NFTs being one of these assets. Although NFTs have been around for a couple of years, they only gained popularity at the beginning of this year when some celebrities started trading in them. Since then, the non-fungible tokens business has been steadily growing.
Currently, experts agree that the NFT market is partially speculative. It is hard to tell whether NFT trading is an excellent long-term investment or how long it will be popular. Therefore, you are advised to treat the non-fungible tokens just like other investments without investing irresponsibly.
In this article, we will look deeper at what this asset is. The guide will also compile the steps of investing in NFTs, creating NFTs, and the risks involved in investing in NFTs. Besides this information, we will also look at the pros and cons of NFTs investment.
What are NFTs?
NFTs are data units stored on a digital ledger to represent digital assets. These digital files track the ownership of different digital items, such as a photo or video file. The NFTs, alias non-fungible tokens, are special assets that have a unique value. The assets are so unique that they have no specific market price.
For example, original artwork is a non-fungible token since it is original and does not have an open market. This means that it is hard to convert this NFT into liquid cash. NFTs are connected explicitly with the Ether cryptocurrency.
While cryptocurrencies and Blockchains have been around for a long, NFTs came relatively later. However, as it is with investing in cryptocurrencies, NFTs investments are also booming, where some are even being sold for millions of dollars.
However, currently, NFTs seem more of speculations than actual investments. It is only that the cryptocurrencies bubble has extended in many things, including NFTs. If you want to speculate in NFTs, ensure you use the least amount of cash possible. This is because the NFT assets are less popular and much unpredictable. In addition, they do not provide a smooth flow of cash, unlike interest or dividends.
How NFTs Work
NFTs are available on blockchains such as Ethereum. Digital objects such as GIFs, Collectibles, Music, Art, Videos, and video games create NFTs. Sometimes, even tweets are used in the creation of NFTs.
NFTs have exclusive ownership rights whereby only one person can own a particular NFT at a specific time. They have unique data that assists owners in transferring tokens efficiently. Owners are allowed to store any particular information inside NFTs, e.g., signing an artwork in the metadata of a particular NFT.
NFTs offer artists unique opportunities of monetizing wares. For instance, modern artists do not have to sell their art through galleries or auction houses. Instead, they can sell them directly as NFTs to their fans, thus generating relatively more profits.
Additionally, artists have an opportunity of programming in royalties so that they get a cut in the sale of every art. Besides art, there are other ways of making money with NFTs. For example, Charmin and Taco Bell raised charity funds through a themed NFT.
How NFTs Relate to Cryptocurrencies
NFTs and cryptocurrencies work the same way and use similar underlying technology. A digital wallet used to hold cryptocurrencies can also be used to store NFTs. NFTs transactions are identical to those of bitcoin, ether, lumens, or dogecoin, whereby blockchain users can track them.
For example, if you buy an NFT, the private and public keys combine to allow the seller to transfer this asset to you. After the handover, the transaction is verified by an extensive computer network. The asset is recorded to belong to a specific anonymous wallet. With your wallet's public and private keys, you can control the contents of the wallet.
After the transaction, you should safely keep your wallet information and private keys since losing them means that you have lost your underlying NFT too. To enhance the safety of your NFT, you are advised to use a secure and encrypted Internet connection.
NFT stocks and stock shares have a similar buying and selling feature. However, NFTs utilize a decentralized finance type, unlike the stock shares that use traditional stockbroker and exchange. With a cryptocurrency wallet, you can directly buy and sell shares without a medium.
How to Find and Invest in NFTs
You can only buy NFTs in specific online marketplaces. These online marketplaces allow you to buy and sell NFTs much efficiently. However, it would be best if you understood that different marketplaces work differently.
The most typical way of making a profit from a particular NFT is by buying it and then reselling it at a higher price. However, they do not have a specific price.
Probably, the best strategy is investing in digital art that you anticipate to appreciate the value in the future. However, you should not put much cash on one NFT but invest in a wide range of tokens.
NFT Online Marketplaces
Opensea: This NFT operates on Ethereum, whereby users interact with the blockchain to trade non-fungible tokens using cryptocurrency. The marketplace hosts various digital collectibles, like video game items and digital artwork. It would help if you used a web3 cryptocurrency wallet such as Metamask to interact with Opensea.
SuperRare: This platform is an NFTs' social network for NFTs where you can buy and sell original asset pieces. It would help if you had Eth coins since SuperRare operates on Ethereum's network.
Nifty Gateway: The NFT marketplace is owned by a cryptocurrency exchange platform known as Gemini. This marketplace has primary marketplaces where famous artists can release their artwork. The platform's secondary marketplace is used for reselling the artwork. A Nifty account is funded with either Ethereum or directly from the platform's website using a credit card.
NBA Top Shot: This NFT marketplace is only licensed for NBA collectibles, such as basketball cards, which are relatively interactive compared to traditional trading cards. Some of these cards have been highlighted for the featured players. For example, a card that featured LeBron James dunking on Houston Rockets sold the highest on the NBA Top Shot at a price of more than $200,000
NFTs Investment Steps
Open an Account With an NFT Marketplace
Browse the various NFT online marketplaces and choose your ideal NFT platform. Create a digital wallet and fund it with cryptocurrency, especially Ethereum.
However, you should note that different NFTs are not available in all marketplaces. For example, an NBA Top Shot is only available in an NBA Top Shot account. In addition, you should understand that different platforms have different purchasing requirements like fiat currency and cryptocurrency payments.
After adding a digital wallet to an online marketplace, you have already opened an account with a particular platform. Once you set it, you are free to participate in the investments.
The digital wallet holds your money, just like a physical wallet. However, unlike a physical wallet, the digital wallet holds cryptocurrency. Generally, the ideal digital wallet is the one that holds the cryptocurrency using physical media such as a thumb drive. This wallet, known as a cold wallet, is hard to compromise as it is not active on the NFT marketplace.
When choosing the digital wallet, ensure that it is compatible with your ideal NFT marketplace. For example, Opensea is compatible with Etherum. Also, consider choosing a wallet that supports your cryptocurrency of choice. For instance, MetaMask works well with Ethereum.
Fund your Account
Most NFTs support Ethereum; thus, most marketplaces accept Eth coins as the medium of payment. With a cryptocurrency exchange account, it is much straightforward to you can purchase Ethereum and send it to your ideal NFT platform.
Buy your NFT
After having an active and funded digital wallet, you are free to purchase an NFT. The marketplaces use an auction format whereby an auctioned asset is sold to the highest or the only bidder. Thus, you have to submit an NFT bid before making a purchase.
Using a primary marketplace to purchase NFT is advantageous since you can resell it directly after its value goes up. The highly demanded NFTs will even sell at least five times their initial price.
However, estimating the price of a particular NFT in a primary marketplace is quite challenging. Unlike a secondary marketplace where you have a comparison of your purchase and its previous sales.
Creating an NFT
With the basic computer skills, it is much straightforward to create your own NFT. The only primary consideration to make is choosing a cryptocurrency that will integrate with your NFT.
Just like in the selling of NFTs, you will need a digital wallet when creating one.
In addition, you will need a marketplace to create an NFT. The most commonly used marketplace is Open Sea. Use the following procedure to create an NFT with Open Sea.
In addition, you can add modifications after creating the NFT. For example, you can upload the metadata as an audio file, video, or image. From there, you can modify your image until it meets the final standard of your desired NFT. If you use the same token to create multiple versions, you have to add a sequence number and a name to the NFT.
After you are satisfied with your final NFT, click on Create. Also, in your digital wallet, ensure you sign the NFT creation message. Open Sea does not charge anything to create an NFT though there is a 2.5% fee for every sale made.
The marketplace will also provide you with some methods of listing and selling your NFT. In addition, you can connect the NFT to various social media pages to sell it faster. Some of the real-life NFT examples include;
Risks of NFT Investment
The best approach to earning from NFTs is by creating your own NFT instead of purchasing. An NFT creation involves a negligible cost, and any cash made from the sale is pure profit.
Pros and Cons of Investing in NFT
Currently, NFTs are used in the sale of collectibles and digital art. This can be a new and efficient method of exchanging collectibles like artwork and trading cards.
In the future, NFTs might be used to monetize physical assets with transparent and incorruptible ownership. NFTs might be very valuable for vehicle titles, real estate deeds, and business licenses.